Imperfect Information: The Persistence of Price Dispersion on the Web

Lindsey-Mullikin, Joan

doi:10.1177/0092070305283366

“…The aggregate effect of this lack of price comparison shopping for big-ticket items is likely to increase price dispersion. Lindsey-Mullikin and Grewal (2006) consistently demonstrate that as the mean price of an item increases, price dispersion also increases. Earlier work in economics, information systems and marketing also find a positive relationship between price and price dispersion.…”

Section: Hypothesismentioning

confidence: 91%

Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets

Ghose

¹

,

Yao

²

2011

Information Systems Research

View full text Add to dashboard Cite

P rice dispersion is an important indicator of market efficiency. Internet-based electronic markets have the potential to reduce transaction and search costs, thereby creating more efficient, "frictionless" markets, as predicted by theories in information economics. However, earlier work has reported significant levels of price dispersion on the Internet, which is in contrast to theoretical predictions. A key feature of the existing stream of work has been its use of posted prices to estimate price dispersion. In theory, this can lead to an overestimation of price dispersion because a sale may not have occurred at the posted price. In this research, we use a unique data set of actual transaction prices collected from both the electronic and offline markets of buyers in a businessto-business market to evaluate the extent of price dispersion. We find that price dispersion in the electronic market is as low as 0.22%, which is substantially less than that reported in the existing literature. This near-zero price dispersion suggests that in some electronic markets the "law of one price" can prevail when we consider transaction prices, instead of posted prices. We further develop a theoretical framework that identifies several new drivers of price dispersion using transaction data. In particular, we focus on four product-level and market-level attributes-product cost, order cycle time, own price elasticity, and transaction quantity, and we estimate their impact on price dispersion. We also examine the electronic market's moderating role in the relationship between these drivers and price dispersion. Finally, we estimate the efficiency gains that accrue from transactions in the relatively friction-free market and find that the electronic market can enhance consumer surplus by as much as $97.92 million per year.

show abstract

“…The aggregate effect of this lack of price comparison shopping for big ticket items is likely to increase price dispersion. Lindsey-Mullikin and Grewal (2006) consistently demonstrate that as the mean price of an item increases, price dispersion also increases. Prior work in economics, information systems and marketing also find a positive relationship between price and price dispersion.…”

Section: Hypothesismentioning

confidence: 91%

Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets

Ghose

¹

,

Yao

²

2006

View full text Add to dashboard Cite

Price dispersion is an important indicator of market efficiency. Internet-based electronic markets have the potential to reduce transaction and search costs, thereby creating more efficient, "frictionless" markets, as predicted by theories in information economics. However, earlier work has reported significant levels of price dispersion on the Internet, which is in contrast to theoretical predictions. A key feature of the existing stream of work has been its use of posted prices to estimate price dispersion. In theory, this can lead to an overestimation of price dispersion because a sale may not have occurred at the posted price. In this research, we use a unique data set of actual transaction prices collected from both the electronic and offline markets of buyers in a business-to-business market to evaluate the extent of price dispersion. We find that price dispersion in the electronic market is as low as 0.22%, which is substantially less than that reported in the existing literature. This near-zero price dispersion suggests that in some electronic markets the "law of one price" can prevail when we consider transaction prices, instead of posted prices. We further develop a theoretical framework that identifies several new drivers of price dispersion using transaction data. In particular, we focus on four product-level and market-level attributes-product cost, order cycle time, own price elasticity, and transaction quantity, and we estimate their impact on price dispersion. We also examine the electronic market's moderating role in the relationship between these drivers and price dispersion. Finally, we estimate the efficiency gains that accrue from transactions in the relatively friction-free market and find that the electronic market can enhance consumer surplus by as much as $97.92 million per year. Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets ABSTRACTPrice dispersion is an important indicator of market efficiency. Internet-based electronic markets have the potential to reduce transaction and search costs, thereby creating more efficient, "frictionless," markets as predicted by theories in information economics. However, prior work has reported significant levels of price dispersion on the Internet, which is in contrast to theoretical predictions. A key feature of the existing stream of work has been its use of posted prices to estimate price dispersion. In theory, this can lead to an overestimation of price dispersion because a sale may not have occurred at the posted price. In this research, we use a unique dataset of actual transaction prices collected from both the electronic and offline markets of buyers in a B2B market to evaluate the extent of price dispersion. We find that price dispersion in the electronic market is as low as 0.22%, which is substantially less than those reported in the existing literature. This near-zero price dispersion suggests that in some electronic markets the "law of one price" can prevail when we consider transaction prices instead ...

show abstract

“…Consumers tend to process price information in a relative way and not absolute way (Lindsey-Mullikin & Grewal, 2006). Therefore, they are often more susceptible to $5 off a $10 item than $5 off a $100 item.…”

Section: Pricesmentioning

confidence: 99%

Eye Tracking in Neuromarketing: A Research Agenda for Marketing Studies

Santos

¹

,

Oliveira

²

,

Rocha

³

et al. 2015

IJPS

View full text Add to dashboard Cite

This article investigates the potential use of Eye Tracking as a neuromarketing tool and its potential for marketing in general. We sought to identify some of the main applications within the mainstream of marketing. The objective of this research was achieved by means of a conceptual literature review. The results of our research indicate important potential uses for Eye Tracking in practical marketing applications, such as brand equity, segmentation, new product development, pricing decisions, place decisions, promotion decisions, and social marketing studies. It is believed that in the near future, neuromarketing tools such as Eye Tracking will be part of mainstream marketing studies.

show abstract

Imperfect Information: The Persistence of Price Dispersion on the Web

Cited by 38 publications

References 26 publications

Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets

Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets

Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets

Eye Tracking in Neuromarketing: A Research Agenda for Marketing Studies

Contact Info

Product

Resources

About